IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

PETER KEENAN :

Plaintiff, :

:

 v. : 02-CV-4420

: 

UNUM PROVIDENT CORP., and :

JOSEPH P. REILLY INSURANCE AGENCY, :

Defendants. :

EXPLANATION AND ORDER

Anita B. Brody, J. March , 2003

Plaintiff’s suit against defendant Unum Provident Corp. (“Unum”), the successorin-interest to Paul Revere Life Insurance Co. (“Paul Revere”), arises from defendant’s decision to

terminate plaintiff’s disability benefits in December 2001. On May 3, 2002, Plaintiff filed suit

against defendant in the Philadelphia County Court of Common Pleas, alleging that Unum’s

termination of his disability benefits constituted a breach of contract and bad faith under 42 Pa.

C.S.A. § 8371 and that Joseph P. Reilly Insurance Agency (“Reilly”) negligently advised plaintiff

to purchase a policy from Paul Revere. On July 3, 2002, Unum removed the case to federal

court. In its notice of removal, Unum argued that federal jurisdiction exists under 28 U.S.C. §

1331 because the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §

1144(a), governs plaintiff’s disability policy. Unum also asserts that diversity jurisdiction is

proper under 28 U.S.C. § 1332 because plaintiff allegedly fraudulently joined co-defendant

Case 2:02-cv-04420-AB Document 20 Filed 03/19/2003 Page 1 of 11
1Paul Revere is incorporated and has its principal place of business in the

Commonwealth of Massachusetts. Unum is incorporated in Maine and has its principal place of

business in Massachusetts. Plaintiff is a Pennsylvania resident. Reilly is organized and exists

under the laws of the Commonwealth of Pennsylvania. But for the presence of Unum’s codefendant Reilly, complete diversity would exist between the parties.

2Plaintiff argues that he was an independent contractor for, rather than an

employee of, Personal Public Adjustors. 

2

“Reilly”.1

 On July 11, 2002, Unum filed a motion to dismiss. On July 24, 2002, plaintiff filed a

motion for remand.

The underlying facts of this case are as follows: In May 1987, plaintiff, while

working for Personal Public Adjustors,

2

 applied for a disability insurance policy with Paul

Revere. Sometime before the summer of 1992, plaintiff ceased to work for Personal Public

Adjustors. In or about March 1992, Personal Public Adjustors requested that Paul Revere

discontinue plaintiff’s disability coverage. In July 1992, plaintiff filed an application to reinstate

his disability insurance. Thereafter, Paul Revere sent bills for plaintiff’s disability insurance

premiums to his home. On or about December 8, 1999, plaintiff became disabled. Unum

accepted plaintiff’s disability claim and paid him benefits under the terms of his policy until

December 2001. Since December 2001, Unum has refused to pay disability benefits to plaintiff. 

On February 5, 2003, I held a hearing to address the issues raised by plaintiff’s

motion to remand. Based on the parties’ oral argument and their submissions both before and

after the hearing, I will deny plaintiff’s motion to remand and also deny defendant Unum’s

motion to dismiss. Because a court must always begin its analysis by considering whether it has

jurisdiction to hear a case, I will first discuss plaintiff’s motion to remand. 

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STANDARD OF REVIEW

Motion to Remand

The Third Circuit Court of Appeals has held that “[i]t is settled that the removal

statutes [28 U.S.C. §§ 1441-1452] are to be strictly construed against removal and all doubts

should be resolved in favor of remand.” Steel Valley Auth. v. Union Switch & Signal Div., 809

F.2d 1006, 1010 (3d Cir. 1987), cert. dismissed, 484 U.S. 1021, 108 S.Ct. 739, 98 L.Ed.2d 756

(1988) (citing Abels v. State Farm Fir & Casualty Co., 770 F.2d 26, 29 (3d Cir. 1985). 

When deciding whether to remand, a district court must review the plaintiff’s

complaint as it stood when defendants sought to remove the case to federal court. Id. The

district court must also “assume as true all factual allegations of the complaint.” Id. (citing

Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir. 1983), cert. denied, 464 U.S. 1039,

104 S.Ct. 701, 79 L.Ed.2d 166 (1984).

Despite this very generous standard of review, there are certain areas of the law

that Congress has so completely preempted that any civil claim raised in that area is necessarily

federal in character. See Metropolitan Life. Ins. Co. v. Taylor, 481 U.S. 58, 67, 107 S.Ct. 1542,

95 L.Ed.2d 55, (1987). A claim to recover benefits due under an ERISA employee benefit plan is

such a claim. Id., Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 354 (3d Cir. 1995). 

Determinations of whether a plan is governed by ERISA is a question of fact. This question is

“to be answered in the light of all the surrounding circumstances from the point of view of a

reasonable person.” Credit Managers Ass’n v. Kennesaw Life & Accident Ins. Co., 809 F.2d

617, 625 (9th Cir. 1987).

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Motion to Dismiss

When considering a Rule 12(b)(6) motion, the Court must accept as true all the

allegations set forth in the complaint and must draw all reasonable inferences in favor of the

plaintiff. See Ford v. Schering-Plough Corp., 145 F.3d 601, 604 (3d Cir. 1998). Dismissal of

plaintiff’s claim is appropriate only if plaintiff “can prove no set of facts in support of his claim

which would entitle him to relief.” Id. (quotations omitted). The court need not, however, accept

conclusory allegations or legal conclusions. Morse v. Lower Merion School District, 132 F.3d

902, 906 (3d Cir. 1997).

DISCUSSION

A. Plaintiff’s Motion to Remand

The parties’ dispute centers on whether or not ERISA governs plaintiff’s disability

policy. Plaintiff’s complaint neither seeks damages nor explicitly state a claim under ERISA. 

Unum maintains, however, that plaintiff’s suit can only be brought under this federal statute

because of the doctrine of preemption. For this reason, Unum argues, the federal courts have

subject matter jurisdiction over plaintiff’s suit. Unum also argues that federal diversity

jurisdiction exists under the doctrine of fraudulent joinder. I will not address this latter argument

because, for the reasons described below, I find that the court has subject matter jurisdiction over

this case based on the existence of a federal question. Federal jurisdiction exists because: (1)

plaintiff received his disability benefits through a plan governed by ERISA and (2) ERISA

ordinarily preempts plaintiff’s state law claims. 

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“Preemption is an affirmative defense and the burden is on the defendant to assert

its application to any given plan.” Brown v. Paul Revere Life Ins. Co., No. Civ.A. 01-1931, 2002

WL 1019021, *5 (E.D. Pa. May 20, 2002).

4Although there is a discrepancy between the name of the company that plaintiff

worked for, Personal Public Adjustors, Inc., and the name of the company billed by Paul Revere,

Public Adjustors, Inc., the parties do not dispute that these two entities are the same. 

5

A disability insurance policy is governed by ERISA if it is obtained through (1) a

“plan, fund, or program;” (2) that is “established or maintained,” (3) “by an employer;” (4) for

the purpose of providing benefits; (5) to its participants or beneficiaries. 29 U.S.C. § 1002(1). 

To resolve the parties’ dispute over whether or not plaintiff’s policy is part of an

ERISA plan, defendant must satisfy the five elements of § 1002(1).3 The Third Circuit Court of

Appeals has held that a policy is a “plan,” for ERISA purposes, if “from the surrounding

circumstances a reasonable person could ascertain the intended benefits, a class of beneficiaries,

the source of financing, and procedures for receiving benefits.” Smith v. Hartford Ins. Group, 6

F.3d 131, 136 (3d Cir. 1993). Unum has presented unrebutted evidence that the policy (1)

provided disability benefits; (2) benefitted individuals who worked with or for Personal Public

Adjustors; (3) had funding arranged by Personal Public Adjustors; (4) benefits were paid directly

to the insured. It has therefore demonstrated the existence of a “plan.”

The second prong of the test for determining ERISA’s applicability requires that

the employer establish or maintain the plan. Plaintiff’s premium notice lists Public Adjustors,

Inc.4 as plaintiff’s employer and the firm’s address as plaintiff’s billing address. See Unum’s

Resp. in Opp’n to Pl.’s Mot. to Remand, Ex. C. This notice is evidence that Unum maintained

the plan that administered plaintiff’s disability policy. Bills sent by Paul Revere to Public

Adjustors Inc. for plaintiff’s premiums further confirm this finding. See id., Ex. B. 

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5Unfortunately, the definition of “employer” found within ERISA is not

particularly helpful. According to the statute, “[t]he term ‘employer’ means any person acting

directly as an employer, or indirectly in the interest of an employer, in relation to an employee

benefit plan; and includes a group or association of employers acting for an employer in such

capacity.” 29 USCA § 1002(5). The fact that Congress chose to include the language “or

indirectly in the interest of an employer” appears to support the Second Circuit’s determination

that the employer-employee relationship, for purposes of ERISA, can be defined expansively. 

This interpretation would also suggest that Personal Public Adjustors qualifies as plaintiff’s

(continued...)

6

The third prong of this test is intertwined with the second: it requires proof that

Personal Public Adjustors, which maintained the plan, was also plaintiff’s employer. Unum has

produced plaintiff’s application for his disability policy. See id., Ex. A. In this application,

plaintiff identified Personal Public Adjustors as his employer. Id. To rebut Unum’s argument

that he is an employee, Plaintiff has supplied copies of his 1099 federal tax forms, which

Personal Public Adjustors issued to him in 1986, 1987, and 1988, in order to prove that he was

an independent contractor. See Pl.’s Mot. for Remand, Ex. C. These forms do not, however,

contradict the evidence that plaintiff supplied in his own application for disability insurance. 

Personal Public Adjustors, for reasons that are not documented, elected to issue the 1099s. In

doing so, the firm did not abandon or disavow its “functions” as plaintiff’s employer “with

regard to the administration of an ERISA plan.” Greenblatt v. Delta Plumbing & Heating Corp.,

68 F.3d 561, 576 (2d Cir. 1995). The assumption of functions like maintaining an employee

benefits plan and providing regular employment, according to at least one Court of Appeals,

suggests that an entity is an employer for the purposes of ERISA. Cf. id.; Bleiler v. Cristwood

Const., Inc., 72 F.3d 13, 15 (2d Cir. 1995). Based on these Second Circuit decisions and

plaintiff’s own admission, I find that Personal Public Adjustors was plaintiff’s employer as

envisioned by ERISA.5

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(...continued)

“employer.” 

7

The fourth prong asks whether the insurance plan was intended to provide a

benefit. Plaintiff’s receipt of two-years-worth of disability benefits establishes the existence of

such a benefit. In addition, pursuant to the hearing I conducted on plaintiff’s motion, I find that

plaintiff received a 15% discount on his premium payments by virtue of his participation in

Personal Public Adjustors’ disability insurance plan. See also Sworn Decl. of Scott J. Williams,

Ex. A. This discount also constitutes a benefit.

The fifth prong of the test for determining whether ERISA governs plaintiff’s

policy requires evidence that plaintiff was a participant or a beneficiary in Personal Public

Adjustors’ employee benefit plan. Plaintiff argues that he received no benefit. Pl.’s Mot. for

Remand, Ex. B. Unum argues that Plaintiff’s receipt of the 15% discount demonstrates that he

was a beneficiary and that his status as an “employee” makes him a participant. Claims brought

by both participants and beneficiaries are governed by ERISA if the complaint involve an ERISA

policy. Wolf v. UNUM Life Ins. of Am., 186 F.3d 352, 357 (3d Cir. 1999), cert. denied, 528

U.S. 1076, 120 S.Ct. 792, 145 L.Ed.2d 668 (2000). ERISA defines a “participant” as an

employee who is eligible to receive a benefit from an employee benefit plan. 29 U.S.C. §

1002(7). A “beneficiary” is one who is “designated” by the terms of an employee benefit plan,

who “may become entitled to a benefit thereunder.” 29 U.S.C. § 1002(8). If plaintiff was not an

employee, Unum argues, then he was a beneficiary - as evidenced by his receipt of disability

benefits and the 15% discount. I agree. Under Wolk, plaintiff’s suit is governed by ERISA

Case 2:02-cv-04420-AB Document 20 Filed 03/19/2003 Page 7 of 11
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regardless of whether he was a participant or a beneficiary of Personal Public Adjustor’s

employee benefits plan.

Having found that defendant has satisfied the five-prong test for establishing that

ERISA governs plaintiff’s disability insurance policy, I must determine whether ERISA also

preempts plaintiff’s state law claims. 

 Congress, in the interest of ensuring uniform treatment of participants in

employee benefit plans, has provided than any state law claims involving an ERISA plan are

preempted by ERISA. 29 U.S.C. § 1001(a)-(b); see also Ingersoll-Rand Co. v. McClendon, 498

U.S. 133, 138-39, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990). In considering ERISA preemption,

the Third Circuit has distinguished between two types of cases. See In re U.S. Healthcare, Inc.,

193 F.3d 151, 161-63 (3d Cir. 1999). The first type of case involves the quantity of benefits due

under a plan and the second type involves the quality of those benefits. Id. Quantity of care

claims involve the defendant’s failure to pay or provide benefits. Id. at 162. Quality of care

claims involve a challenge to the defendant’s decision as to how it provides benefits. Id. at 162-

63. Only “quantity” claims are completely preempted by ERISA. Id. at 162. “Quality” claims

are not completely preempted and the district court lacks removal jurisdiction over such claims. 

Id. at 162-63. 

Plaintiff has brought state actions for bad faith and breach of contract against

Unum. Both claims are completely preempted as they involve Unum’s alleged failure to provide

benefits. See 29 U.S.C. § 1132(a)(1)(B); Ginsburg v. Independence Blue Cross, No. Civ.A. 01-

66, 2001 WL 267874, *4 (E.D. Mar. 16, 2001). Removal is therefore proper and, accordingly,

Case 2:02-cv-04420-AB Document 20 Filed 03/19/2003 Page 8 of 11
6The court has supplemental jurisdiction over the remaining claims. See Davis v.

Smithkline Beecham Clinical Labs., Inc., 993 F.Supp. 897, 899 (E.D. Pa. 1998).

7The safe harbor provision states that ERISA plans “shall not include a group or

group-type insurance program offered by an insurer to employees or members of an employee

organization, under which:

(1) No contributions are made by an employer or employee organization;

(2) Participation in the program is completely voluntary for employees or members;

(3) The sole functions of the employer or employee organization with respect to the program are,

without endorsing the program, to permit the insurer to publicize the program to employees or

members, to collect premiums through payroll deductions, or dues checkoffs and to remit them to

the insurer; and

(4) The employer or employee organization receives no consideration in the form of cash or

otherwise in connection with the program, other than reasonable compensation, excluding any

profit, for administrative services actually rendered in connection with payroll deductions or dues

checkoffs.” 29 C.F.R. § 2510.3-1(j). 

9

the federal court has jurisdiction over all plaintiff’s claims.6

 Furthermore, plaintiff’s contract and

bad faith claims are subject to dismissal on a motion to dismiss, as they are preempted. 

Ginsburg, 2001 WL 267874, *4 (citing Norris v. Continental Casualty Co., No. Civ.A. 00-1723,

2000 U.S. Dist. LEXIS 9163, at *4 (E.D. Pa. June 29, 2000), Asprino v. Blue Cross & Blue

Shield Ass’n, No. Civ.A. 96-7788, 1997 U.S. Dist. LEXIS 6708, at *4 (E.D. Pa. May 7, 1997)). 

Because I have found that plaintiff’s disability benefits policy is governed by ERISA and that his

state claims are preempted by the federal statute, federal question jurisdiction exists. For this

reason I will deny plaintiff’s motion to remand.

B. Defendant’s Motion to Dismiss

Defendant has filed a motion to dismiss. In its motion, Unum argues that federal

preemption of plaintiff’s bad faith and breach of contract claims necessitates their dismissal. I

disagree. Plaintiff has raised the argument that the Safe Harbor Regulation applicable to ERISA,

29 C.F.R. § 1510.3-1(j), prevents the statute’s application to his disability policy.7

 Determination

Case 2:02-cv-04420-AB Document 20 Filed 03/19/2003 Page 9 of 11
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of whether the safe harbor provision applies to plaintiff’s policy requires knowledge of facts not

yet in evidence. Before resolving this issue, the court will need to make factual findings that

require further briefing and testimony. It would therefore be premature to dismiss plaintiff’s

lawsuit. For these reasons, Unum’s motion to dismiss is denied. Based on my decision that

ERISA governs plaintiff’s disability policy with Unum, plaintiff, if he wishes, shall have twenty

days from the date of this Explanation and Order to file an Amended Complaint wherein he may 

allege the application of the safe harbor provision or raise other ERISA-related claims. 

 

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ORDER

AND NOW, this day of March, 2003, it is ORDERED that:

(1) Plaintiff’s Motion to Remand (Docket # 3) is DENIED;

(2) Defendant’s Motion to Dismiss (Docket # 2) is DENIED;

(3) Plaintiff’s Motion for Sanctions (Docket # 10) is DENIED;

(4) Plaintiff shall have 20 days from the date of this Explanation and Order to file an

Amended Complaint.

 

ANITA B. BRODY, J. 

 Copies FAXED on _______ to: Copies MAILED on _______ to:

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